RBA governor Philip Lowe backs mortgage refinancing boom

RBA chief says the record-breaking rush to refinance mortgages is a pleasing side effect to the pandemic, urging more people to look for a better deal.

RBA governor Philip Lowe says that mortgages for refinancing are being written at nearly the same rate as for new borrowing, the first time this has happened in Australia.

RBA governor Philip Lowe has urged Australians sitting at home to take the time to refinance their mortgages as this year’s cuts to the cash rate filter through to home loans, taking mortgage interest rates to record lows.

Speaking to an online audience as part of his address to the Anika Foundation, Mr Lowe, who was asked about his thoughts on the current state of the housing market, said he was encouraged at the amount of refinancing he has observed.

“I‘ve been very pleased to see the amount of refinancing going on,” he told the audience.

“For many years I’ve been, in lots of public forums, I've been encouraging people to look at the rate they were getting from their bank, and if they weren’t getting a very low rate, go and knock on the door and set up a Zoom conference with their banker and ask for a better deal.

“And if the bank said no, go to another bank.

“One positive out of the pandemic I think is that people have been sitting at home and looking for better deals on their mortgages.”

Last week ABS data revealed that a record number of Australians refinanced in May, with the total value of refinanced mortgages exceeding $15.1bn, a 26 per cent increase on the previous high of $12 billion in April.

Of the 33,712 people who refinanced, a record 64 per cent heeded Lowe’s advice and switched lenders.

In addition, the value of refinanced loans almost matched the $16.42 billion in new housing loan undertakings in May, something that Mr Lowe said was promising.

“The value of the refinanced loans was almost as high as the number of loans for newly purchased properties,” Mr Lowe said.

“That’s the first time in our history (that has happened), so there’s been a lot of refinancing.”

Banks have been fighting to lower rates in the past few months following the RBA’s move to cut the cash rate to just 25 basis points in March.

Variable rates are being offered below 2.5 per cent while a Tasmanian bank last month became the first Australian bank to offer a fixed-rate mortgage below 2 per cent.

Mr Lowe said that continued high rates of refinancing would ease economic stress on households and encourage lenders to remain competitive.

“People get a better deal, it frees up some cashflow and it puts some extra competitive discipline into the banking system,” he said.

“So I encourage people who haven’t already taken the opportunity to do that to look at their mortgage rate, and look for a better deal.”